Stephen Koenig Fall 2012 Management Principles

Comparing Walmart and Target Walmarts competitive environment is quite unique. Although Walmarts primary competition comes from general merchandise retailers, warehouse clubs and supermarket retailers also present competitive pressure from companies like Target. The discount retail industry is substantial in size and is constantly experiencing growth and change. The top competitors compete both nationally and internationally. There is extensive competition on pricing, location, store size, layout and environment, merchandise mix, technology and innovation, and overall image. The market is definitely characterized by economies of scale. Walmart and Target both rely heavily on brand recognition; Walmarts is stronger forcing Target to advertise more incurring more cost. Walmarts lower prices are a huge driving force to bring customers in to their stores and keeping the customers out of other stores like Target. Walmart locations tend to be in lower rent areas compared to where Target places their stores. This is another boost to Walmarts profitability. Walmarts inventory control system (ICS) gives it a huge advantage over Target. The system reduces overall inventory while simultaneously increasing how quickly the inventory is turned over. In fiscal 2011,
inventory sat on its shelves for an average of 40 days, when their suppliers expect payment in 60 days (for example), this basically gives Walmart a free loan for 20 days that allows Walmart to be a

much more aggressive in their purchasing than Target. Although Walmarts cost of goods sold is higher than Targets, they make this up in sheer volume of sales which makes Walmart a more profitable chain. Walmart began with the goal to provide customers with the goods they wanted when and where they wanted them. Walmart then focused on developing cost structures that allowed it to offer low everyday pricing. The key to achieving this goal was to make the way the company replenishes inventory the centerpiece of its strategy, which relied on a logistics technique known as cross docking. Using cross docking, products are routed from suppliers to Walmarts warehouses, where they are then shipped to stores without sitting for long periods of time in inventory. This strategy reduced Walmarts costs significantly and they passed those savings on to their customers with highly competitive pricing. Walmart then concentrated on developing a more highly structured and advanced supply chain management (SCM) strategy to exploit and enhance this competitive advantage.

Walmarts supply chain begins with strategic sourcing to find products at the best price from suppliers who are in a position to ensure they can meet demand. Walmart establishes strategic partnerships with most of their vendors, offering them the potential for long-term and high volume purchases in exchange for the lowest possible prices. Suppliers then ship product to Walmarts distribution centers where the product is cross docked and then delivered to Walmart stores. Cross docking, distribution management, and transportation management keep inventory and transportation costs down, reducing transportation time and eliminating inefficiencies. This is something that Target cannot compete with. As stated earlier, technology plays a key role in Walmarts supply chain, serving as the foundation of their supply chain. Walmart has the largest information technology (IT) infrastructure of any private company in the world. Its state-of-the-art technology and network design allow Walmart to accurately forecast demand, track and predict inventory levels, create highly efficient transportation routes, and manage customer relationships and service response logistics. Although Target is not in the dark in this area, Walmart dominates with their integration of IT, ICS and SCM. Both companies have comparable online shopping systems, with options of shipping to the customers home or to a local store of the customers choosing. Walmarts SCM strategy has provided the company with several sustainable competitive advantages, including lower product costs, reduced inventory carrying costs, improved in-store variety and selection, and highly competitive pricing for the consumer. This strategy has helped Walmart become a dominant force in a competitive global market. As technology evolves, Walmart continues to focus on innovative processes and systems to improve its supply chain and achieve greater efficiency. One point where Walmart has come under great scrutiny is the treatment of their employees and their unethical business practices. The list of grievances seems endless, from offering the lowest wages in the industry to avoiding giving their employees health insurance. An example of questionable treatment, In November 2009, Joseph Casias was fired from Walmart in Battle Creek, Michigan, for using medical marijuana. Joseph Casias was a cancer patient with a prescription for marijuana. Walmart spokesman Greg Rossiter claimed that Walmart policy is to terminate employees who take certain prescription medications, and he believed that this policy complied with the law. Target is not necessarily without sin in these areas; however the spotlight seems to shine on Walmart due to the sheer number of complaints and protests. Walmart has been accused of selling merchandise at such low costs that competitors have tried to sue it for predatory pricing (intentionally selling a product at low cost in order to drive competitors out of the market).

An example: The complaint accused Walmart of selling butter, milk, laundry detergent, and other staple goods below cost at stores in Beloit, Oshkosh, Racine, Tomah, and West Bend. A bottle of laundry detergent that cost Walmart $6.51, for example, was sold for less than $5 at several stores. The companys intention, according to the complaint, was to force competitors out of business, gain a monopoly in local markets, and ultimately recoup its losses through higher prices. State officials filed the complaint after Walmart failed to take corrective action following several warning letters sent as early as 1993. Although most, if not all, states have received numerous complaints from small business owners about Walmarts anti-competitive practices, Wisconsin is the first state to investigate predatory pricing at the companys outlets and file a formal complaint. Issues like these may be one way for Target to gain a competitive advantage over Walmart. After all is said and done, Walmart has the cheapest prices. Some consumers pledge allegiance against Walmart, but they are few and far between, however in the grand scheme of things, with current economic conditions people are going to go where they get the most for their dollar and end up going to Walmart. For now Walmart has the competitive advantage over Target, perhaps an upturn in the economy would allow more people to let their conscience guide their choice of chain. RESOURCES http://www.icmrindia.org/casestudies/catalogue/Operations/WalMart%20Supply%20Chain%20Management%20Practices.htm http://ivythesis.typepad.com/term_paper_topics/2009/06/walmarts-supply-chainmanagement.html http://supply-chain-case-studies.blogspot.com/2007/11/walmart-case-study-on-supplychain.html http://www.casestudyinc.com/Case-Study-WalMart-Supply-Chain http://supply-chain-case-studies.blogspot.com/2008/06/walmart-scm-strategy-analysis.html http://en.wikipedia.org/wiki/Criticism_of_Walmart http://www.businessweek.com/investor/content/aug2009/pi20090818_319142.htm